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Walmart announces pay hike for employees and then cuts jobs. Here's why.

Business
Walmart recently announced an increase in starting pay for employees, then it cut jobs. (Joe Raedle/Getty Images)

Shortly after Walmart announced higher starting wages for its hourly associates, the big box retailer decided to eliminate more than 1,000 jobs, primarily at its headquarters in Arkanasas, according to published reports. Walmart is also believed to be closing 63 of its Sam’s Club warehouses, which could mean the elimination of up to 11,000 more jobs. A Walmart spokesman did not confirm the cuts, but told Fortune magazine the company has been “looking at our structure for some time as we explore ways to operate more effectively.”

What is really happening?

Walmart announced last week that the minimum starting pay for hourly associates will be $11 an hour. About 15 corporations across the nation announced wage hikes or worker bonuses following the passage of a new tax law with big cuts in the corporate tax rate. But Walmart has raised its dismal starting pay every year over the past three years. In 2015, the minimum pay for an hourly associate was upped to $9 an hour, and then to $10 an hour in 2016.

Fortune magazine points that one reason for the latest pay increase is likely related to a tighter labor market. The nation’s unemployment rate is now about 4 percent, and that means it’s going to be tougher to keep good, hard-working employees in low-paying jobs.

Another reason is that Walmart, a notorious killer of small-town businesses, is now facing its own monolith: Amazon. The job cuts could be Walmart’s way of streamlining costs as Amazon continues to expand its reach. Amazon purchased Whole Foods in 2017, and rumors are swirling that Amazon could also buy Target, one of Walmart’s biggest competitors, Fortune magazine reported.

In the end, who benefits?

“Their timing is intended to support the political thesis that tax cuts will benefit workers, but many economists and other experts argue that most of the benefit will actually accrue to shareholders,” Fortune magazine stated.

Walmart has long been criticized for its lack of full-time opportunities for hourly workers and for funneling employees into government assistance programs. In 2014, the cost of public assistance programs given to Walmart employees was estimated at $6.2 billion. But that could change. To offset the debt created by tax cuts, Republicans are already looking for ways to reduce programs such as Social Security and Medicaid. In the end, an extra $20 to $40 a week is unlikely to make a massive difference in the lives of Walmart associates.

With 1.5 million employees, Walmart is the nation's largest private employer.

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